A Little More Money, A Lot More Good Will

New leaders in Tallahassee preach harmony, but there's plenty to fight over.

There's a little extra anticipation in the air as the Legislature prepares to convene next month. With leadership apparently determined to keep things civil in the Tallahassee sandbox, there's some good will as the annual jockeying for goodies begins.

As the special session ended in mid-December, Gov. Jeb Bush commented to a crowd at the Cystic Fibrosis Foundation dinner in Fort Lauderdale that "we've been pretty dysfunctional up in Tallahassee," but "the last four days, we did a whole lot."

Perhaps the most reassuring symbolism came from House Speaker Allan Bense at the organizational session in early November. Former House speakers and minority leaders going back decades assembled for the ceremonies, but the one who was given the gavel was Democrat J. Hyatt Brown of Daytona Beach, whose speakership in 1979-80 is still regarded as a sort of Camelot, characterized by openness, bipartisanship and devotion to the public interest. Brown served with an equally well-regarded Senate President, Philip D. Lewis of West Palm Beach.

Both Bense and new Senate President Tom Lee of Brandon are thinking about a legacy in the Brown-Lewis tradition. The two jointly issued the proclamation for the special session -- a task the governor usually handles. Lee, for his part, promised not to "define our legacy in terms of some monument in my district."PEACE MOVEMENT

For all their collegiality, the true test for Senate President Tom Lee and House Speaker Allan Bense will be whether they can persuade lawmakers to make tough compromises if need be.The big question, of course, is how the collegial approach will cohabit with conservative principles and the bigger Republican majorities in both houses. The pre-kindergarten program sailed through the special session in a form not all that different from the one Bush vetoed last summer as inadequate, but the general desire for camaraderie was so great that critics mostly held their tongues.

Bense called the session just "a small test" of the one-for-all spirit and seemed a little worried that talk of a new Era of Good Feeling was setting expectations unreasonably high.

It remains to be seen, for example, whether Bense and Lee have the persuasive capacity of Brown and Lewis to make members swallow some bitter medicine if the need arises.

As notable as the kum-ba-ya symbolism this year is the presence of more goodies to fight over. As the special legislative session was beginning in mid-December, the state's Revenue Estimating Conference said the 2005 Legislature would have about $3 billion more to play with -- better than 5% more, on top of previously anticipated growth, in a state budget moving toward $60 billion.

Of course, the $3-billion bonus is accounted for about five times over in various spending proposals now floating around. Even conservative legislators want to bring home the bacon, and the state continues to grow rapidly.

So who's likely to get what?

If you get anything from Medicaid, as a patient or a provider, this isn't likely to be your year. The Medicaid program, already accounting for a fourth of the state's spending every year and growing about three times as fast as the rest of the government, is in for some cutting.

If you're a manufacturing company buying research equipment, Gov. Jeb Bush would like to give you a few tax breaks. Bush also is eager to repeal the class-size amendment passed in 2004. The Legislature could never bring itself to repeal the bullet train, so Bush got his own initiative going. The Legislature may get more interested in repealing the class-size amendment, especially if the education lobby gets the idea from last year's spending plan that the rest of K-12 education is going to be sucked dry to pay for it.

And speaking of repeal, there's the matter of the "substitute communications" tax, which could become a billion-dollar problem for Florida businesses. After an uproar over initial proposed rules about how the tax applies, the Department of Revenue is basically stalling until the Legislature can take one more crack at the problem. If lawmakers don't do anything, some businesses are going to have to consider putting a "contingent liability" on their balance sheets or taking provisions for the tax, says Dominic Calabro, CEO of Florida TaxWatch.

Inevitably, there will be another run at making it harder to pass citizen initiatives, generating predictable dueling arguments: Public access to amend the constitution vs. the Legislature's prerogative to set policy and spending priorities.

The state is full of interest groups that are formulating a myriad of proposals for the next Legislature, so it's impossible to guess what might catch a wave and move forward. But let's look at a few representative issues in a little more detail.

TAXES

Holidays, Exemptions and MoreAt least three tax issues are up for discussion this year -- four if you count the perennial tax holiday. One, Bush's proposed elimination of the intangible tax, may not get any further than it already has.

Bush has other taxes to grind. He has proposed extending to smaller businesses a sales tax exemption for machinery and equipment used to expand a business by at least 10% and exempting machinery and equipment for any business if it is used primarily in "research and development."

Bush says 40 other states have little or no tax on machinery and equipment for manufacturing, while Florida's current exemption applies only on the amount of tax over $50,000 -- meaning about $830,000 in equipment purchased. That is, except in the case of printers, who don't have to meet the $50,000 threshold. A separate exemption, for R&D equipment, would be expanded to apply not just to semiconductor wafer research and partially (25%) to defense or space research. Now everybody's R&D would be included.

The governor's press release said Bush "has placed particular emphasis upon ensuring a business friendly environment via progressive tax policy." Enterprise Florida, a booster of the tax breaks, said current policy is a "tax on innovation and production."

As for the intangible tax, Republicans have raised the exempt amount from $20,000 to $250,000 per person or corporation ($500,000 per couple). The state has also acquiesced in a blatant tax dodge that lets people who follow specific rules essentially give their money away to an out-of-state trust for a couple of weeks just before Jan. 1 to avoid the tax. A fight ought to be unlikely since only rich people without lawyers or with some peculiarly high standard of personal ethics are paying the tax anyway.

A Communications Tax MonsterWhen telecommunications were deregulated and people could buy their own equipment, the state stood to lose some of the taxes that phone companies collected on phone services and other things. So the Legislature in 1985 passed a tax on "substitute communications systems," which at the time affected just a few companies that bought their own phone equipment instead of leasing it from the local phone monopoly. In 2001, the Legislature consolidated lots of old communications laws and taxes. No one paid any attention to the "substitute communications" tax, which was paid by only a handful of companies then.

But the local governments, which get a cut of the money through local option taxes, started arguing to the Department of Revenue that the definitions covered routers, PBX switchboard equipment, walkie-talkies, point-of-sale systems and a lot of other "communications" that used to go by telephone lines. Suddenly there were some big potential tax liabilities for companies that had never paid the tax before -- up to 16% tax on the cost of operating these substitute systems.

National companies based in Florida with networks running to the home office could be particularly pained by the tax -- tens or even hundreds of thousands of dollars. "It's a monster that's about to hurt some Florida-based companies," says Calabro of TaxWatch.

But most companies that might be affected haven't paid yet. They're waiting. "This is not a proposal -- it is a statute," says DOR Communications Director Dave Bruns. At some point, companies could get bills for taxes and penalties going back to October 2001. At the same time, DOR is moving slowly to give the Legislature a chance to clear things up.

"We don't have any clear answers," says Bruns. "We need guidance from policy-makers." It's possible that a local government, eager for its share of the tax, will file a lawsuit demanding that DOR collect the tax.

Bruns adds, "It is the obligation of the Department of Revenue to enforce the law. We would very much like to know what the law is."

SPENDING

Medicaid: The Return of Pac-ManThe Medicaid program, already accounting for a fourth of the state's spending every year and growing about two to three times as fast as the rest of the government, is in for some cutting.

The state spent $750 million on Medicaid in 1982, back when the state budget was still in single-digit billions. Now, with the state budget about six times bigger, Medicaid spending is 20 times bigger. In the 1990s, it became apparent that "Medicaid was a Pac-Man of the state budget," gobbling up all the money, says Calabro. But welfare reform, even ahead of the Clinton welfare-reform program, cut a lot of people off the Medicaid rolls. The booming economy of that decade kept driving state revenue as well, so the issue remained manageable.

Now, "Pac-Man has re-emerged," Calabro says.

There are really just two ways to slow down the growth: Cut some people out of the program or cut down the benefits. Freezing or lowering the income cutoff, currently about $18,850 ($9-an-hour full time) for a family of four, is one way to cut the clientele. Another, much more complicated approach, would do something about the 50,000 Medicaid recipients who work full time for state and local governments or minimum-wage employers. Reducing benefits can mean either eliminating coverage for some treatments or reducing what Medicaid will pay providers for performing those treatments.

A change like that could nick the doctors. It could also nick nursing homes, HMOs, hospitals, drug companies, laboratories and all the rest of the health industry. And they could try to make it up from the rest of their patients.

Florida is likely to redesign the program and seek a waiver of federal rules. Waivers aren't hard to get. The state would still get the federal share of the program, but with fewer strings attached. No one seems to be extrapolating the Medicaid problem into the larger problem of fast-rising health costs for everybody.

Higher Education: Paying for GrowthThe Florida Association of Colleges and Universities will push for legislators to fully fund growth at state universities and community colleges. Community college and university presidents continue to warn that the state is facing a coming tidal wave of students that will swamp the system. Part of the group's agenda includes increased funding for Florida Resident Access Grants, which pay for Florida residents to attend independent, Florida-based colleges and universities. Another part of FACU's agenda is to begin shifting state aid to students from merit-based to more need-based, in part by increasing eligibility standards for Bright Futures Scholarships. Most states allocate about 75% of their state aid to college students based on need; Florida gives only 25% according to need.

But a larger and more controversial plan may focus on who sets tuition. The Legislature has tended to control tuition increases, but universities are looking for more flexibility, not just in setting tuition levels as community colleges can do, but in creating new structures to penalize students who overstay the traditional four years. That deals with the lackadaisical progress of some students, but it also hurts those who take smaller loads so they can work to pay their bills. The Legislature, if it does anything with this, could give flexibility directly to each university or to the Board of Governors, which oversees all the universities.

Pre-K: 'Starting Point' or Blueprint for Mediocrity?Unless the legislators get an injection of ambition this spring, they have set the course for what they call the "pre-kindergarten" program. In the spring session, they will appropriate something like $370 million for next year. It's possible there will be some effort to put some audit controls on the money. In December, as they were fretting over fraud by KidCare moms and dads, the Republicans were dismissive of the need for controls on the flow of dollars to private pre-K providers, which some called outsourcing without performance standards.

The program is half what the Republican lieutenant governor's task force recommended last year in terms of educational hours, half what Georgia has and half of a real "public" program, since most of the program will be outsourced to churches and other private schools. Providers even have five years to see that their teaching staff members all have two-year degrees (nine years to get to four-year degrees).

At one point, Lee declared that the state-paid hours would have to be free of religious instruction, but the religious lobby was appalled. Lee caved. Here's what TaxWatch said about program quality just before the special session: "The central rationale ... is to help ensure children's social, emotional, and cognitive readiness for school. Better-educated teachers have more positive, sensitive and responsive interactions with children, provide richer language and cognitive experiences and are less authoritarian, punitive and detached."

The governor was stampeded last summer into vetoing the Legislature's first bill as inadequate. With little improvement, the same bill got his enthusiastic post-election approval. Lee said, somewhat half-heartedly, that this is a "starting point." But there are no commitments for higher standards later. Some south Florida legislators were said to be considering a bill to set aside tax money from the new casinos in south Florida, approved by voters in November, for improving pre-K above the current level.

Other Spending Issues at a GlanceState employees have been a whipping boy for the Bush administration. Even though Florida's state employees are among the most productive in the country, as measured by the number of employees per 1,000 population, pay raises have been miserly or non-existent. "Florida has one of the most efficient governments in the country, but it ranks 47th in terms of pay for employees," says Sen. Al Lawson, D-Tallahassee. "We have a large number of people working for state government still eligible for food stamps." It's now an open question whether continued suppression of pay levels is turning away the best-qualified employees. Combine it with inadequate training for initiatives like outsourcing and foster-care crises and you have the makings of deteriorating services. A 3% raise would cost about $90 million, and Lawson is hopeful that the better revenue estimates will boost this issue.

The Legislature has repeatedly rejected new judgeships to keep up with state growth. In 10 years, for example, there has been a grand total of one appellate judgeship added. But the real problem is in the trial courts, which have to deal with every issue a litigant brings. No trial judges were added last year. The Florida Supreme Court, using criteria the Legislature demanded the court use, has certified a need for more than 100 new judges -- at a cost less than a sales-tax holiday. The whole court system amounts to less than 1% of the state budget.

There's a quiet revolution going on in Florida about the value of rehabilitation and early intervention and treatment with lesser crimes, especially young people. Since his own daughter's well-publicized drug problems, Bush has seemed to moderate an earlier hard line and become an advocate of more money for drug courts, which most judges feel have been enormously successful.

The governor may drop an additional big issue or two into the hopper with the release of his budget proposals in late January -- after this issue of the magazine goes to press.

INITIATIVES

Again this year, the Legislature will try to combat Initiative Madness. Bush is eager to repeal the class-size amendment passed in 2002, and the easiest way would be for the Legislature to put the question on the 2006 ballot.

The 2004 initiatives may produce some fallout. The bullet-train bureaucracy isn't giving up. The doctors and lawyers, now in court over their dueling initiatives, may look for some supportive legislation this year on limited contingent fees for lawyers, three-strikes license revocations for doctors found liable for malpractice and open records on doctor performance. But the whole thing is more grudge match than policy debate, and the Legislature knows it. Lawmakers also know that any legislation would just be one more thing for the combatants to go to court over.

There are constitution-related proposals that would require passage by a super-majority, along with more regulation of the signature-gathering process, but a number of citizen-oriented and consumer-oriented groups banded together last year to resist anything more than an earlier deadline for gathering the signatures.

Senate Judiciary Chairman Daniel Webster has indicated a desire to "purify" the constitution by taking out provisions better suited to state law, not a constitution. But he also wants amendments banning gay marriage, even though the governor thinks existing law is already adequate, and eliminating the separation of church and state.

OUTSOURCING

For all the sweetness and light around the Capitol, the Senate president did fire one warning shot. To fill the posts of chair and vice chair of the Senate Governmental Oversight and Productivity Committee, Lee appointed senators whose districts include Tallahassee and its thousands of state employees. The chair, Republican Nancy Argenziano, promptly announced a committee inquiry into outsourcing, one of the governor's pet initiatives that has been full of embarrassments and disappointments.

Argenziano's biggest concern is a $350-million, nine-year contract with Convergys to handle payroll, benefits and other personnel record-keeping. But that contract is just a drop in the bucket, with something like $23 billion of the state's $57-billion budget now made up of contract payments.

"It has become a growth industry," says Gary VanLandingham, head of a state management-evaluation group called the Office of Program Policy Analysis and Government Accountability. He told Argenziano's committee the state often signs contracts without assessing what it's really looking for and without adequate standards for performance. As for accountability, public officials often try to duck responsibility by blaming the contractors.

Bush's own administrators have taken some steps to tighten up the standards on outsourcing contracts and train employees in contract administration.